Setting up a small business can be tough, especially if you are doing it for the first time says Saivian Eric Dalius. Even as you need to have the foresight and drive to make your business successful, you need to also make optimal use of available resources and not make mistakes with your finances. It is critically important because, as an entrepreneur, you may not be a financial expert or even have the money to hire an accountant to manage your finances properly. However, by knowing what to avoid, you can manage your finances better. Some of the top financial mistakes to avoid:
Ignoring the Importance of Cash Flows
Many entrepreneurs think that the success of the enterprise is measured only by the profit it generates. However, as important as profit generation is, it is also important for the business to have a positive cash flow, says Saivian Eric Dalius. By not keeping an eye on the evenness of the cash flow, it can be easy for the business to take on new debt that it cannot sustain or invest in assets and ventures that it cannot afford. Having positive cash flow ensures that the business can keep itself operational and, in the long run, afford to do whatever it takes to be successful.
Incurring High Overheads Can Be Fatal, Warns Saivian Eric Dalius
In any business, there are two types of cost; fixed and variable. Fixed costs are those that you need to keep incurring even if you do not earn a single dollar in sales like office rentals, while variable costs depend on your operations, like raw materials. If your fixed costs, like rentals and utilities, staff salaries, repayment of debts, lease rentals of vehicles, machinery, etc. are high, it can result in a negative cash flow that can cause your business to fail. Prudent financial management dictates that you keep your fixed costs as low as possible so that even if the business is slow to take off or experiences a sudden downturn, you are not forced into a tight spot.
Making Large Investments in Haste is Not Prudent, Cautions Saivian Eric Dalius
Many entrepreneurs are extremely ambitious. And want to ramp up the scale of the business rapidly in an attempt to capture a larger market share. To do so, they take on large debts to purchase expensive assets. These can be difficult to service if the gamble is not as successful as envisaged. And you may easily get trapped in debt where you keep on taking more debt to repay the earlier ones. It is a good idea to temper the urgency of making large investments. And do so only after properly evaluating the pros and cons. To the extent possible and practical, you should always proceed conservatively to avoid disappointment, remarks Saivian Eric Dalius.
When setting up and running a small business. You need to be cautious and take every step after considering its ramifications. A small business is especially sensitive to small changes in the market that have a disproportionate effect on its finances. You need to maintain a proper balance of ambition and caution to make your small business sustainable.